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Homework answers / question archive / Inventory Costing and Management The following information pertains to ABC, Inc

Inventory Costing and Management The following information pertains to ABC, Inc

Accounting

Inventory Costing and Management

The following information pertains to ABC, Inc., for 2019:

Beginning inventory in units -

Unit produced 25,000

Units sold 23,000

Ending inventory in units 2,000

Variable costs per units:

Direct materials $8

Direct labor $3

Variable overhead $1.8

Variable selling expenses $4

Fixed cost per year:

Fixed overhead $107,500

Fixed selling and administrative $26,800

 

There are no work-in-process inventories. Normal activity is 25,000 units. Expected and actual overhead costs are the same.

Question:

a. Without preparing an income statement, indicate what the difference will be between variable-costing income and absorption costing income.

b. Assume the selling price is $26. Create an income statement using: (1) variable costing and (b) absorption costing.

c. When we evaluate managerial performance, which method is more appropriate to use, whether variable costing or absorption costing? Why?

 

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